Abstract

http://ssrn.com/abstract=1589653
 
 

References (144)



 
 

Citations (2)



 


 



Chief Financial Officers as Inside Directors


Jean C. Bedard


Bentley University - Department of Accountancy

Rani Hoitash


Bentley University - Department of Accountancy

Udi Hoitash


Northeastern University

April 20, 2013

Contemporary Accounting Research, Forthcoming

Abstract:     
Considerable prior research investigates whether the extent of insider presence on corporate boards is detrimental. However, the majority of past research treats all inside directors as a homogenous group. This study considers that issue in the context of chief financial officers (CFO) serving on their own company's board. Our research is important because individuals in different executive roles bring different skills and knowledge to board interactions, highlighting the potential for differential contributions. As prior research does not specifically distinguish CFOs from other board insiders, the potential benefits of knowledge sharing due to increased communication with other board members may have been masked. Specifically, the CFO is directly responsible for the quality of the financial reporting process and can therefore be associated with specific outcome measures. Our results show that the percentage of CFOs serving on their own boards is not large, likely due to the perspective (consistent with agency theory and reflected in independence guidelines) that company insiders on boards could promote their own best interest at the expense of shareholders. Contrary to this perception, we find that companies whose CFO has a seat on the board are associated with higher financial reporting quality (i.e., a lower likelihood of reporting a material weaknesses in internal controls or having a financial restatement, and better accruals quality). Yet, we also find potential drawbacks in that CFOs with a board seat tend to have higher excess compensation and lower likelihood of termination following poor performance, signaling greater entrenchment. While our results provide information to companies considering appointing the CFO to the board, both costs and benefits are demonstrated, and thus we conclude that each board should consider this decision based on its own circumstances and composition.

Number of Pages in PDF File: 48

Keywords: Chief financial officer, inside directors, board of directors, financial reporting quality

JEL Classification: M41, M43, G3

Accepted Paper Series


Download This Paper

Date posted: April 15, 2010 ; Last revised: April 21, 2013

Suggested Citation

Bedard, Jean C. and Hoitash, Rani and Hoitash, Udi, Chief Financial Officers as Inside Directors (April 20, 2013). Contemporary Accounting Research, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1589653 or http://dx.doi.org/10.2139/ssrn.1589653

Contact Information

Jean C. Bedard (Contact Author)
Bentley University - Department of Accountancy ( email )
175 Forest Street
Waltham, MA 02452
United States
781-891-2410 (Phone)
781-891-2896 (Fax)
Rani Hoitash
Bentley University - Department of Accountancy ( email )
175 Forest Street
Waltham, MA 02452-4705
United States
Udi Hoitash
Northeastern University ( email )
360 Huntington Ave.
Boston, MA 02115
United States
671-373-5839 (Phone)

Feedback to SSRN


Paper statistics
Abstract Views: 2,515
Downloads: 595
Download Rank: 24,079
References:  144
Citations:  2

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.344 seconds